Employers With Large Deductible Policies May
No Longer Receive Discount Benefits

By Alex Sarajian

The California Insurance Guarantee Association (CIGA) has proposed a number of recent changes to the current law regarding large deductible policies which will directly impact employers with such policies.

CIGA is the organization that is supposed to step in and cover claims when the primary carrier becomes insolvent. Under current law, the assessments that an employer pays into CIGA as part of its workers’ compensation premiums are based on the amount of the net premiums paid by employers, which can result in a discount for the large deductible amounts. Under the proposed changes, the CIGA assessments will be calculated based on the entire gross premium without taking into consideration the deductible amounts.

This new proposed legislation should alert employers who have secured large deductible policies or are considering obtaining such policies that they will no longer receive the benefits of reduced CIGA assessments on the large deductible amounts. On the other hand, smaller employers may experience some indirect relief as they will not have to bear the
brunt of the CIGA assessments.

“...deductible amounts paid by policyholders to the carrier would go to
CIGA in the event of an insolvency...”

According to recent reports, CIGA is currently experiencing a workers’ compensation funding shortfall of about $1.6 billion in ultimate liability. Since September 2000, 25 workers’ compensation carriers have been liquidated. CIGA’s liabilities now exceed $900 million per year. CIGA’s revenue crisis is a direct result of its current expenses of approximately $2.7 billion compared to revenues of approximately $1.1 billion.

Consistent with CIGA’s need to remain financially viable in the wake of its budget shortfalls, CIGA is also putting the final touches on proposed legislation which will secure the ownership of the large deductible amounts in the event CIGA is forced to cover claims of an insolvent carrier. This would require that deductible amounts paid by policyholders to the carrier would go to CIGA in the event of an insolvency rather than to the estate of the insolvent carrier.

The proposed legislation may have the added benefit of allaying CIGA’s concerns that it would not be reimbursed for the large deductible amounts in the event CIGA paid the claims on behalf of the insolvent carriers. Since the General Casualty Insurance et al. v. WCAB et al. (Miceli) decision, CIGA has refused to administer and pay future claims for staffed employees who were insured through the general employer’s insolvent carrier. A rehearing of this case at the Court of Appeal was held on April 15, 2005, but the court has not rendered a decision yet. Perhaps with the passage of proposed legislation, CIGA will take a more logical approach to the large number of cases currently bogged down at the WCAB due to the Miceli decision and continue to administer and pay the claims and then seek reimbursement from the proper parties.

In the event you need further information or guidance with respect to the recent proposed CIGA legislation, please do not hesitate to contact our office.


 

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